China + Domain Name Industry Knowledge

How solid is the customer relationship with the new gTLDs? Is any registry making decent money?

Some new domain extension (new gTLD) registry operators may be doing OK or even much better than OK despite lackluster volume. Unfortunately for more than a few, not so much.

It’s not just the number of domains under management (DUMs) that may indicate the relative health of a particular TLD registry operator and/or its future relationship and up-sell revenue potential with the end user.

Just because a new gTLD registry has 1 million+ names under management does not confidently indicate to me that they have a solid long term relationship with the majority of their end user customers, and thus solid prospects for long-term continued recurring renewal revenue.

Cases in point: Some of the top 10 selling new gTLDs have average create terms of just barely over 1 year. Like 1.01 and 1.02 years.

That means they are going to have to work even harder and spend money or giveaway a lot of marketing dollars/incentives to keep that business at renewal time—and hopefully for more than a few dollars per name year.

I’d bet that barely 6 months after selling a 1 year create they have to start thinking about how they are going to get renewals in place. In my mind this takes management/investor focus away from developing a proper name product that demonstrates value to the customer, and that has decent margins for everyone involved in the value chain, vs. having to focus on short term domain renew goals and bother the hell out of registrars and others down the line.

It’s not easy out there in the new gTLD name space. But you already knew that.

So what other metrics can one use to measure the relative health of a particular new gTLD and prospects for long term relationships with their end users?

One metric I look for is Average Term in order to estimate Total Name Years under management—then at what average net wholesale price per name year after all rebates/credits/free name years/marketing etc. are taken into account.

Unfortunately most registry operators do not publish such metrics for a variety of reasons. However if you dig around a bit sometimes you can find data points to help you do the reverse math to get some idea how someone might be doing.

I submit that there are new gTLDs with seemingly insignificant numbers that may be making decent money from a registry operator standpoint, although on the surface their low DUMs number might make it look like their staff is just wasting time converting oxygen into CO2.

For example, there is in fact a new gTLD registry operator with a little over 9,000 DUMs that might not look like a long-term player at first glance based on that number alone, but appears to be banking decent revenue.

According to NameStat this registry operator has an Average Term for all those names equalling just slightly greater than 8 years, the highest of all the new gTLDs. So doing the math it indicates they have about 72,000 name years under management.

If a new gTLD registry has an average term that is 1.25 years or greater then something is going well.

Unless they are giving away multi-year registration or renewal terms for zero or little change then I submit they may be doing well with direct B2B sales to actual end users willing to pay upfront for much longer terms than the average domainer. Of course some registrars may default their GA create offers to 2 years and that can also be a factor.

I dug further.

This operator is largely selling direct at ~$430.00 retail per name year in the mid-range of their pricing/service offers. The lowest retail price product is $185 retail per name year.

Yep you read that right.

There are also extra one-time service fees on top of the registration fees, and even charges for periodic changes to registration information.

Impossible you say?

OK. I did notice they were giving away some extra name years that can apply to a second name registration if you purchased or renewed a certain minimum term to start. If you only apply the lowest retail fee they are offering, which appears to be $185 per year and multiply by the average term of ~8 years, there’s potential for $13,320,000 in upfront direct retail sales revenue with no pressure to have to worry about renewals for nearly a decade. And that’s still not including mandatory service charges and other fees.

Not too shabby.

Which guys with less than 10,000 DUMs are possibly getting those kinds of numbers? Well, it is a Chinese IDN that is mostly selling direct.

An IDN??? Are you kidding???

Nope.

A Chinese IDN that’s very restrictive. In fact more restrictive than many ccTLDs.

It’s first come, first served, but they apply a serious validation process. Within China there is 2-layer authentication, where the registrant must first pass the registry’s real name registrant authentication (real name verification) and then a trademark verification process.

Over 90% of the registrants are from within China. The rest are foreign registrants doing business in China. (e.g. Gucci, Starbucks).

The registry operator is Huyi Global Information Resources (Holding) Company Hong Kong Ltd. They also have offices in Beijing and Guangzhou, China. The parent company has deep experience in directory services, intellectual property protection services and B2B trading platforms in China. They’ve got more than 200 trademark service companies working with them right now to help sell DOT SHANGBIAO domain names…presumably for multi-year registration terms mainly via two Huyi controlled registrars.

I recently corresponded with Walter Wu, the President of the registry operation. He’s a soft-spoken and long-time industry friend of mine.

Walter is no stranger to the domain name business. He was co-founder of China Springboard, which provided managed DNS, online advertising, domain name investment and online media development services leveraging direct navigation. He also was founder and President of NameRich, one of the early leading pioneers in the China domain aftermarket.

Walter confirmed the retail pricing indicated on their website and corroborated average term and total domain name years. Of course the actual wholesale price is going to be lower than the retail price. Still, if you look at the direct sales model there’s plenty of room for margin in the value chain. I’d imagine it’s better than what some of the top 10 ASCII new gTLDs are depositing these days to their bank accounts.

I asked Walter: “Why do you feel that enterprises are starting to purchase IDN’s? And in particular why do you think they are purchasing [your TLD] .商标?”

He opined “…IDNs provide an opportunity to let an enterprise use their core brand name for their online entrance.”

He added: “…before the IDNs launched, Chinese users could only use their indirect brand name (maybe in Chinese pinyin, or maybe their English name). But those types of names are not easily remembered by Chinese users. IDNs provide the solution for Chinese brand owners to use their core brand name as their domain name which is easily remembered in 3 seconds by customers. Recently the value of traffic is very high. SEM costs too much to get the traffic for enterprises. So applying the IDN, it’s easily remembered. Expanding the IDN direct type-in traffic is a good best practice for Chinese enterprises.”

Do the math and you can start getting a feeling for the potential by selling just a couple of thousand new names per year with an average term of 8 years.

If you take a look at NameStat you will find that as of today 8 of the top 10 new gTLDs (ordered by average term length) are Chinese IDNs. The only exceptions are .MMA (a brand TLD) and .CODES (a Donuts TLD).

I caution that just because a TLD has a high average term it does not necessarily indicate a particular level of revenue, or that they have a solid long term relationship with their end users. It is theoretically possible that some TLDs are assigning inventory to certain registrars for extended terms at lower costs to later resell to end users. However in the case of DOT SHANGBIAO this is not possible due to the registration restrictions.

In conclusion, yes it seems that some new gTLD operators are making decent money. It appears to me that direct B2B sales can work for some new gTLDs depending upon the domain product and access to a related database of customers. Designing a TLD registry operation business plan so that sales organizations sell high average term lengths at decent margins will enable management to focus on new customer acquisition growth and product innovation vs. spending dollars and time to convince registrants to renew year after year at insanely slim price points and margins.

It appears that Huyi and .商标 (DOT SHANGBIAO) are able to leverage customer relationships that already exist in the value chain and offer an extremely restricted domain product that customers are willing to spend thousands of dollars for upfront—and use. The long term relationship will enable future potential to expose other complimentary services to the customer base.

I publish two blogs. One (PinkysEye.com) related to my lifelong interest in photography, video, wanderlust travel, and telling stories. The other (PinkyBrand.com) addresses my experiences and opinions on business development, China, and the domain name industry, where I’ve spent the better part of the last 21 years at the registry and registrar levels.